Navigant Research Blog

China’s Huge Smart Meter Market Seeks Sustainability

— October 8, 2012

In 2010, Chinese President Hu Jintao pointed out that China should aim to “build a strong, smart, highly efficient and reliable grid system that covers both urban and rural areas.”  Since then, he has frequently asserted the goal of energy independence in relation to smart grid deployments.

According to recent reports from the Chinese media, the deployment of smart meters is swiftly ramping up and will reach around 230 million units by 2015.  While actual progress could fall short of this huge number, it’s undeniable that the actual number will be significant compared to other regions.

Even so, the question remains: how will China achieve its goals in terms of the strength of the market, as measured by the qualitative scope and success of the market players, not just by those stunning quantitative volumes?  Will China’s smart grid program be strong in this sense as well as in sheer numbers?

Several challenges are evident.  For one, the major Chinese utilities (The State Grid Corporation of China (SGCC) and China Southern Power Grid) are not entirely consistent in smart meter standards.  Second, China is quite fragmented, with different versions of local communication protocols, different functional requirements for installation, usage, and management in smart meters, with over 300 types of meters in use by local regions.  While China has already formed a standards body, associated with the China Electric Power Institute (CEPRI), cooperation and broad-based standards are still lacking.

Therefore, the surprising number of smart meters announced and currently being deployed in China might not be the real issue.  The state-owned utilities must tackle the fragmentation that could impede the progress of Chinese domestic metering markets.  For smart meter manufacturers, the lack of uniform standards could lead to inefficient, duplicative, and waste of resources in R&D investment.  Accordingly, the delay of the standards will push back the time frame for mass production.  Eventually, Chinese companies in the smart metering industry are vulnerable to low margins and falling competitiveness.

Utility Partnerships

Already, the ultracompetitive bidding process for Chinese smart meter vendors has started to winnow the weaker players.  Since 2009, China has had successive plans and procurement cases with multiple bidding processes each year.  More than 70 Chinese meter manufacturers have participated in the bidding, but only 30% of these participants eventually sign deals, making for a very competitive market landscape.

Given the keen competition, some big players such as Ningbo Sanxing are actively working with the two major utilities to differentiate themselves from their competitors.  This close cooperation with utilities includes discussions on product design at the earliest stage, along with quality control and joint R&D.

As a result, smaller vendors will face big challenges in making their technologies competitive unless they secure similar relationships with utilities.  Even more important for the small players is the issue of cost competitiveness.  Aggressive bidding has driven vendors’ margins close to zero.

To build a truly strong and competitive industry, China needs a positive market environment with a high degree of cooperation in smart meter standards.  This is a necessary condition for vendors to survive in the Chinese smart meter arena.  Announced numbers of deployments are not the best signal for the development of a strong, sustainable industry.


Southeast Asia: Laggard or Promising Challenger in the Smart Grid World?

— June 9, 2012

Recently, I returned to Bangkok so I could participate in one of the largest regional conferences, Metering, Billing / CRM ASIA 2012.  The conference was designed to provide industry and market insights for metering stakeholders in Asia.  Participants examined the status of regional metering, reviewed metering strategies and plans, and looked at case studies of successful industry projects from various angles.  Most participants represented either Asian or international utilities and included key solution providers involved in metering, billing, and IT and data management for power utilities.

If I had to choose one phrase to illustrate my impression of the conference, I would say that it was “up-to-date”; it covered the key parts of smart metering in Southeast Asia (SEA), offering many opportunities for sharing knowledge.  Participants in the event could find realistic approaches for tackling the challenging issues facing smart meter deployments and get ideas for overcoming barriers.  Those are probably the common goals of industry leaders in the region.  Presentations and discussions covered crucial and key issues such as ”what is important to keep in mind when deploying meters?”  The exhibitors and market stakeholders at the event were passionate in their discussion of these issues.

At the conference, I presented Pike Research’s view on smart grid and meters, in a presentation entitled Southeast Asia Smart Meter Market Overview, including market forecasts for smart meter penetration rates.  I also moderated a roundtable session for smart grid leaders that included seven panelists from SEA utilities, who discussed their current status regarding smart meter uptakes and market challenges.  Key points from that roundtable discussion follow.

Conventional wisdom suggests that smart grids and smart meters are a viable option for the developing world.  That is partly true, at least at present and over the next couple of years.  Through my participation at the conference and talking with many participants, I had an opportunity to expand my perception of the market as well as my views.  SEA countries aspire with similar urgency to smart grids and AMI in their aging grids because they are driven by common social and economic purposes.

In recent years, SEA has continually demonstrated economic growth and urbanization.  Given its huge potential and its continuing growth, a large part of SEA’s growing electricity demand mirrors the region’s urbanization and increased industrialization.  Those factors have a direct impact on SEA’s growing need for electric power.

Yet, nations in the region face the dual challenges of underdeveloped electric infrastructure and power grids, as well as a lack of capital and technologies to make advances in power grid services.  As of now, SEA governments and industries find themselves struggling to keep pace with the new trends in global clean energy development while they actively address the need for sufficient electricity.  Their intentions to upgrade their power grids are surely sincere.  Not surprisingly, some emerging countries such as Thailand, Malaysia, Indonesia, and the Philippines have recently been driving concrete national roadmaps that embrace smart grids.  Their intention to adopt these roadmaps is primarily based on managing power more efficiently and effectively.  With the advent of a robust grid communications infrastructure, additional intelligence can be deployed throughout the grid, for example, with AMI, whereby customers make decisions about energy consumption.

Yet, challenges still exist.  Most of the region’s developing nations face a lack of electric power sources and aging and inefficient grid infrastructures.  Rural electrification has been an important factor in the policies of these nations as they attempt to improve living conditions for people in remote areas by increasing food production, developing agro-industry (and other types of industry), providing lighting to rural residents, and generally stimulating productive activities.  Multiple sources of capital and technology assets are necessary for upgrading and meeting demands – and those are the factors most lacking for these nations.

Also at the roundtable, I learned about some of the driving forces behind Southeast Asia’s smart grid appetite.  Utilities in the region are pursuing fragmented and different goals depending on how far along their national grids are in pursing smart grids or smart meters, or both.  Overall, utilities and market stakeholders in the region are pursuing one (or both) of the following:

  1. Energy efficiency focus (such as load balancing and efficient grid management)
  2. Revenue protection focus (such as theft prevention and reduced billing errors with smarter metering solutions) in their frameworks, in association with conceptual and functional models in smart grids.

Pike Research will soon publish a new report on “Smart Grid in Southeast Asia” in which I scrutinize market and business issues, barriers and challenges, technology issues, and detailed country status and smart grid/meter deployment plans, including market forecasts from 2011 to 2020.

Southeast Asia is no longer a benchwarmer and will make its best effort to drive a “smarter” grid infrastructure.


China’s Smart Grid Spearhead

— April 26, 2012

According to a Chinese government source, China intends to install over 300 million smart meters in 2015, a massive increase of 730% from the 36 million smart meters installed in 2011.  China’s utility giant, the State Grid Corporation of China (SGCC), will invest $47 billion in power grid construction over the next five years.  About $100 million of this amount will be used to advance the smart grid technology.

The news media only supplies numbers, so it’s hard to know what the Chinese players are actually doing now.  I feel that the real story behind China’s smart grid program would be even more impressive than the published figures.

Chinese players are engaging across all aspects of the smart grid space: power generation, transmission, substation, distribution and consumption, by adopting advanced information-gathering and intelligent information-processing technologies.  While there are many different views in China’s development in smart grid, my focus is on the utilization of information technology, automation, and intelligent interactivity in components of the power grid infrastructure from utilities to consumers.

The overall goal of the Chinese smart grid effort is to enhance the capabilities and levels of existing elements, including:

  • Power transmission equipment utilization
  • Network security and reliability
  • The quality of electricity service
  • Power grid efficiency

More specifically, on the transmission side, the major goal is to implement sensors to achieve real-time monitoring of transmission lines.  At the substation level, Chinese parties believe that smart grid technology can automatically adjust power levels and achieve rapid fault resolution in intelligent substations, through intelligent switches and transformers.

On the distribution side, Chinese players expect that real-time monitoring, intelligent power distribution, and other networking applications can achieve more rapid failure restoration, a more reliable electricity supply, and visualized operations management tools.  Eventually, these elements could offer advanced functionality in information collection and analysis, intelligent electricity load shifting, and remote meter reading applications to link two-way smart meters.

Recently, a bunch of Chinese players, including RXPE Sieyuan NARI, XJ Electric, Clou Electronics, Holley, and Ningbo Sanxing, have shifted their business focus to pursue huge market potential in the domestic smart grid markets.  At the same time, it’s clear that China could be more aggressive on the global stage.  Huawei announced that it will launch in the U.K. smart meter market after signing a joint venture deal with technology provider Landis + Gyr.  SGCC, meanwhile, has signed smart grid deals in the Philippines, Brazil, and Portugal.    China has also stepped up efforts to become part of the global community in seeking smart grid standards.  For example, China recently insisted on establishing a new committee under the International Electrotechnical Commission (IEC), with the U.S. and European representatives approving this request.  China is signaling its intent to get off the sidelines and instead become directly engaged on the standards front.  That’s an appropriate move, as China becomes a center of global smart grid innovation.


Hawaii Becoming a Test Bed for Clean Technology

— March 1, 2012

Earlier this month, the government of Hawaii and Korean partners (the Republic of Korea Ministry of Knowledge Economy and the Korea Smart Grid Institute) signed a letter of intent to pursue mutual interests in smart grid development in the Hawaiian Islands.  While the project scope and specific practices for the Hawaii project are not clearly defined in the announcement, it’s safe to assume that projects included in the Jeju Island smart energy program, including smart meters, renewable energy development, and electric vehicles, would be implemented in Hawaii.

Hawaii comprises more than 120 scattered islands and is far from the nearest mainland (1,860 miles).  Electricity is expensive, and Hawaii is the most fossil fuel-dependent state in the nation.  Thus, the need for switching to renewable sources of energy is as much an economical imperative as it is an environmental one for the islanders.

With regards to policy, Hawaii is deeply committed to developing a clean-energy economy.  The island state has made great progress in aligning regulatory policies with clean energy goals; encouraging development of next generation, clean energy technologies; and deploying renewable generation and grid infrastructure.  As a result, the state has been building energy efficiency, increasing photovoltaic capacity, and creating green jobs.  The following figures show how much Hawaii has been deploying clean-energy technologies relative to the other 49 states.

Further, the state has bold goals: to achieve 70% of its energy from renewable sources by 2030.  Hawaii aims to serve as a clean energy model for the U.S. and for the world. As the graph below indicates, 66 renewable energy projects are currently in progress and more are in development in bio-energy, geothermal, hydro, solar, and wind, etc.

I’ve written several blogs about the Jeju projects.  As of now, over 170 Korean companies are engaging in specific projects, including advanced metering infrastructure (AMI), electric vehicles, solar and renewable generation, and energy storage test beds.  In the case of AMI, 6,000 household are participating in a smart meter test. The Ministry of Knowledge and the Smart Grid Institute are leading the project with investments totaling more than $240 million between 2009 and 2013.

In fact, South Korea is an exceptional country. With a sole utility service provider – KEPCO – and its current advanced electricity grid capabilities, South Korean camps are targeting oversea markets, rather than domestic markets, from the first phase.  Focusing on overseas smart grids markets will help Korean players find more lucrative opportunities.  Thus the partnerships with Hawaii should help Korean providers gauge their current capabilities by applying Jeju’s outcomes in a similar environment in the United States.  Jeju and Hawaii both have clean, year-round, and renewable energy resources, including abundant sun and wind.  Tourism is the major industry in both places, and Hawaii and Jeju both hope to maintain their unique ecosystems with clean energy sources.

Japanese partners already initiated a joint U.S.-Japanese smart grid demonstration project in November, 2011 on Maui. Those two projects with Asian players could make progress to achieve Hawaii’s goals.


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